December 17, 2014
Mortgage rates rose at an acceptable pace today, following the FOMC Announcement and press conference. Rates are driven by bond markets (mortgage-backed-securities, to be specific) and bond markets make a big deal of digesting and reacting to Fed policy. The FOMC Announcement is the Fed's most official statement and has the biggest market moving potential of anything that occurs on a scheduled basis. All that having been said, the statement doesn't always merit the market movement its capable of producing. Sometimes markets don't react much at all.
Today produced something just slightly more serious than that, but nothing remotely close to its potential. Traders were somewhat surprised to see the Fed's lack of concern regarding the recent volatility surrounding oil prices, as well as their apparent willingness to consider hiking the Fed Funds Rate at the April 28/29th meeting. While the Fed Funds Rate is not a direct driver of mortgage rates, the two are interconnected enough that "up is up" and "down is down" in all but the strangest of historical examples.
The Fed's stance stemmed from a fairly upbeat assessment of economic potential. Bond markets reacted accordingly and most mortgage lenders were forced to revise rates higher in the afternoon. The damage was limited by the fact that bond markets were already weaker in the morning. Combine all that with the fact that yesterday was the best day for rates in more than a year and a half, and there was a bit of headroom to soak up today's weakness. The net effect is a top tier rate that remains 3.875% for most and 3.75% for some (conforming, 30yr fixed).
Loan Originator Perspective
"If you didnt lock yesterday, today's rate sheets are mostly unchanged from yesterday. This morning, rates came under slight pressure ahead of the FOMC statement and accompanying press conference from Fed Chairperson Yellen resulting in a few lenders worsening rate sheets. My advice is basically unchanged from yesterday. If you are closing this month, you should go ahead and lock unless your lender was one of the few to reprice worse. If it was, then i would float until tomorrow. All loans closing in January and beyond, in my pipeline are floating." -Victor Burek, Open Mortgage
"Rates have been trending to new 2014 lows. Global economic headlines and oil prices have certainly helped and that will likely continue. It’s hard not to lock in the lowest rates in 18+ months, but floating could be rewarded. Be ready to lock if there is a sudden shift in the risk on, risk off sentiment." -Michael Owens, Vice President of Mortgage Lending, Guaranteed Rate
"Between the Fed Statement and Chairman Yellen's press conference, we lost ground this afternoon on rates. It wasn't a total rout, but many lenders repriced worse. Bottom line: as noted the last couple of days, rates had been the best since May, 2013. We're still close to those levels, and floating entails significant risk. I'll be advising all but the most risk tolerant clients to consider locking early in the process." -Ted Rood, Senior Loan Originator, MB Financial Bank
Today's Best-Execution Rates
- 30YR FIXED - 3.75-3.875
- FHA/VA - 3.25
- 15 YEAR FIXED - 3.125
- 5 YEAR ARMS - 3.0 - 3.50% depending on the lender
Ongoing Lock/Float Considerations
- The hallmark of 2014 has been a narrow range in rates. Too many market participants bet on rates going higher in 2014, and markets punished that imbalance with a paradoxical move lower. This continues to serve as a reminder that prevailing beliefs about where rates will go won't necessarily be correct simply because they're the most prevalent.
- European bond yields have trended constantly lower in 2014, thus playing a prominent role in keeping US rates lower than they otherwise might be. Many feel that Europe will continue to slide until their central bank engages in US-style quantitative easing. Some see this happening in early 2015. In any event, we're looking for a turn in Europe, first and foremost, before worrying about the longer-term trend in bond markets being at serious risk of reversing.
- Much of 2014 could be considered "sideways to slightly lower" in terms of mortgage rates. All things considered, it actually has been a remarkably gentle drift lower. Things became less gentle in mid October when rates briefly broke into the high 3's. They came back for a more gradual, determined push into the 3's in December. Some of the late-year strength is being chalked up to an epic slump in oil prices. This drags inflation expectations lower, which is a net-positive for interest rates.
- As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.' Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy. It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).